Published Papers

Sonti, Ramana.,Charles Hadlock. (2012) "Financial Strength and Product Market Competition: Evidence from Asbestos Litigation", Journal of Financial and Quantitative Analysis, 47 (1), 179-209Read Abstract >Close >We study the role of financial strength on product market competition by examining exogenous shocks to a firm's liability structure arising from asbestos litigation. We find that unexpected exogenous increases (decreases) in a firm's asbestos liabilities arising from actions by external
parties are interpreted by the market as negative (positive) news for the firm's close competitors.
Since asbestos liabilities are debt-like claims, these findings support the hypothesis that increases in fixed liabilities lead to more aggressive competitive interactions. Competitor returns are particularly negative in events in which one asbestos-tainted firm goes bankrupt and other
asbestos stocks fall on the news, suggesting that non-equity liabilities affect a firm's product market decisions by causing them to discount default states of the world. The magnitude of the response of competitor stocks to asbestos liability shocks is not related to most of the firm and industry characteristics we consider, casting doubt on some possible explanations for our findings.

Sonti, Ramana.,M S Cichello, C E Fee, C J Hadlock. (2009) "Promotions, Turnover, and Performance Evaluation: Evidence from the Careers of Division Managers", The Accounting Review, 84 (4), 1119-1143Read Abstract >Close >We study turnover and promotions of division managers in multidivisional firms. Turnover is negatively related to divisional accounting performance, positively related to industry performance, but not significantly related to firm performance or the performance of other divisions. Consistent with tournament theory, promotions are significantly related to whether one division is performing better than others, but are not significantly related to the magnitude of any performance difference. A simple performance metric, divisional ROA, appears more closely related to job allocation decisions than several alternatives. Our evidence is consistent with the hypothesis that accounting information is used by firms when evaluating managerial personnel.

Working Papers

Sonti, Ramana.,Thomas H. Noe, Michael J. Rebello. "Mechanisms, markets, and monitors: A theory of endogenous choice of governance mechanisms in market equilibrium"Read Abstract >Close >We model a world where managerial opportunism can be countered by several governance mechanisms: activist investors, the threat of asset redeployment, incentive compensation, or formal board monitoring. Firms choose combinations of these mechanisms to develop their governance structures, and their choices affect the equilibrium premium earned by activist capital. At the individual rm level, opacity of the rm, the level of managerial diversion costs, and the premia required to compensate activist investors are among the factors that drive the choice of governance structure. These factors can have opposite effects on governance choices at the individual rm and aggregate levels, e.g., a reduction in the opacity of a single rm increases the likelihood of that rm adopting strong board governance, while a reduction in opacity throughout the economy can decrease aggregate adoption of strong board governance.